The beleaguered financial adviser Convoy has taken legal action to seek damages from its executive director, Roy Cho Kwai-chee, and 27 others for the illegitimate diversion of funds that brought substantial losses to the company.
Convoy sought a declaration that Cho and his associates acted in breach of fiduciary and common law. All 28 defendants should pay damages, the amount of which was not given.
In a writ filed in the High Court yesterday, Convoy Global Holdings and its subsidiaries CSL Securities and Convoy Collateral also sought a court order to set aside the shares "wrongfully" allotted in a so-called circular financing scheme, which it alleged Cho spearheaded.
They also want to nullify the acquisition of shares by Kwok Hiu-kwan and Chen Pei-xiong, saying their acquisition was a "continuation of the alleged conspiracy." Most of the defendants were linked to the so-called Enigma Network, 50 companies which a market expert advised investors not to buy.
Nineteen defendants were listed as Cho's "associates." They include the four former executives earlier arrested by the Securities and Futures Commission and Independent Commission Against Corruption - former chairman Quincy Wong Lee-man, former vice chairman Rosetta Fong Sut-sum, former director Christie Chan Lai-yee, and former chief executive and Lerado Financial Group chairman Mark Mak Kwong-yiu.
Under the guise of raising capital for Convoy, Cho and his associates improperly used their power to allot shares and to grant loans on a commercially irrational basis. He involved "independent" placees to pay the subscription price only on condition that such payments would be directly or indirectly funded by Convoy itself.
The companies involved in the circular financing arrangement - all defendants in this case - were Ever Robust Holdings, China Green (Holdings), Classictime Investments and Fastek Investments. They were all linked to the Enigma Network - the 50 companies commentator David Webb said one must not own.
Of the HK$4.043 billion raised, almost HK$1 billion was channeled back to these placees under suspicious loans and margin arrangements.
Although Cho had no formal role in Convoy, the writ alleges he manipulated the company by appointing his associates to key positions. Among those "sweetened" with a high salary was the former chairman Wong, the writ alleged.
Cho was consulted by his associates using a secret e-mail address - email@example.com - which, read backwards, would be the stock code of Convoy "1019," according to the writ.
The writ also alleged Cho and Mak diverted at least HK$45.5 million to an offshore private company which Wong, Fong and Mak collectively held.
Convoy paid HK$46.21 million to Gransing Securities for being the placing agent of its bonds. Without the Convoy board knowing, Gransing engaged the offshore company to be a sub-placing agent and paid it HK$45.5 million, the writ stated.
Fast forward to this year, Convoy claimed the acquisition of 37.17 percent of Convoy shares by Kwok and Chen was also problematic.
Their acquisition came with "peculiar" timing following the release of Webb's report on the Enigma Network, and after Cho was subjected to regulatory investigations from the middle of this year.
The acquisitions were "a continuation of the alleged conspiracy," the company said, pointing out that the amount closely matched that held by investors involved in Cho's circular financing scheme.
Kwok, the 27-year-old son of Kaisa owner Kwok Ying-shing, had called for a Convoy shareholders' meeting on December 29 to expel eight directors and to appoint five candidates of his choice.
In the writ, Convoy sought an injunction against Kwok and Chen, to restrain them of exercising their voting rights.
Also named as defendants were Ling Koon-wah, the managing director of PR Asia Consultants, a financial PR company which served as an agent for various Enigma companies; and Kevin Cho Kwai-yee, the brother of Roy Cho.
Kaisa Group released a statement saying the acquisition by Kwok Hiu-kwan was his personal investment and had nothing to do with Kaisa. Chen Pei-xiong was also not a staff member of Kaisa.